Currently, many industries are faced with the potential for huge reoccurring liabilities against them. For example, the tobacco industry has already entered into settlements with all the states to pay for injuries caused by smoking.
Another industry facing huge reoccurring liabilities against them is the Health Maintenance Organization (HMO) industry. Currently, Congress is debating a Patient's Bill of Rights (PboR) that will increase the potential liability of managed care providers. The passage of the PboR will increase the expenses of HMOs, which will increase the cost of managed care to the public. Some estimates of the increase in cost of managed care as a result of the PboR are as high as 15%–25%. These high estimates can be attributed to the fact that only a portion of any price increase will go to paying for PboR related costs.
In the HMO industry the Industry and Wall Street investment bankers have termed the costs attributed and assigned to providers, for example, doctors, hospitals and pharmaceutical providers the “Medical Loss Ratio.” In reality, the Medical Loss Ratio is dependent upon the amount of money the HMO is taking in per member. Accordingly, as the HMOs raise their fees to members to pay the costs of the PboR, providers can raise the price they charge HMOs in a proportional amount. In this manner, what happens is only a fraction of money the HMO takes in as a result of raising the fees can be used for paying off liabilities. Accordingly, a method is needed to allow funds that are needed to pay for additional liability costs to go more directly to paying for the additional liabilities.